PAC Bond
Stands for Planned Amortization Class bond. A tranche class offered by some CMOs that has a sinking fund schedule and an ability to make principal payments that are not subordinated to other classes.

Paid-in capital
Capital received from investors in exchange for stock, but not stock from capital generated from earnings or donated. This account includes capital
stock and contributions of stockholders credited to accounts other than capital stock. It would also include surplus resulting from recapitalization.

Par
Equal to the nominal or face value of a security. A bond selling at par is worth an amount equivalent to its original issue value or its value upon redemption at maturity-typically $1000/bond. See: Discount, premium.

Parameter
A model is a combination of variables, such as GDP growth, and coefficients which multiply these variables. The coefficients are often estimated from the data. The coefficients are called parameters.

Parent company
A company that controls subsidiaries through its ownership of voting stock, as well as runs its own business.

Parking violation
Often used in risk arbitrage. Illegal holding of stock by a third party, or the financing of such a stock, in which the third party's sole reason for holding the stock is to conceal ownership or control of a raider, thus sidestepping the Williams Act requirements of 5% holding limits. See: Rule 13d.

Partial
Used in the context of general equities. Trade whose size is only part of the total customer indication/order, usually made to avoid a compromise in price and also to get some business instead of losing the customers inquiry/order to a competitor.

Partial compensation
Incomplete payment for the delivery of goods to one party by buying back a certain amount of product from the same party.

Partial Vote
When only a portion of the total shares in an account is voted. For example, a broker has 1,000 shares and sends out a card to each of four shareholder clients. If only three of the four client cards are returned to the broker, the broker will submit only 3/4ths(750 shares) of the total 1,000 shares to vote. If the fourth card arrives later, an additional vote can be counted.

Partnership agreement A written agreement among partners detailing the terms and conditions of participation in a business ownership arrangement.

Party in interest
An ERISA-specified individualsuch as an administrator, officer, fiduciary, trustee, custodian, or counselwho is prohibited from making certain transactions involving a retirement plan. A trustee, for example, would be prohibited from using an IRA as collateral for a loan.

Pass the book
The process of transferring responsibility for a brokerage firm's trading account from one office to another around the world in order to benefit from trading 24 hours a day.

Pay-up
The loss of cash resulting from a swap into higher-priced bonds or the need/willingness of a bank or other borrower to pay a higher rate of interest to get funds. Used in the context of general equities. (1) When an investor who wants to buy a stock at a particular price hesitates and the stock begins to rise; instead of letting the stock go, he "pays up" to buy the shares at the higher prevailing price. (2) Buy shares in a high-quality company at what is felt to be a high, but supportable, price due to its quality.

Payable through drafts A method of making payment that is used to maintain control over payments made on behalf of the firm by personnel in noncentral locations. The payer's bank delivers the payable through draft to the payer, which must approve it and return it to the bank before payment can be received.

Payments netting
Reducing fund transfers between affiliates to only a netted amount. Netting can occur on a bilateral basis (between pairs of affiliates), or on a multi-lateral basis (taking all affiliates together).

Payments pattern
Describes the collection pattern of receivables. The pattern might describe the probability that a 72-day-old account will still be unpaid when it is 73 days-old.

Payments System
Collective term for mechanisms (both paper-backed and electronic) for moving funds, payments and money among financial institutions throughout the nation. The Federal Reserve plays a major role in the nation's payments system through distribution of currency and coin, processing of checks, electronic transfer of funds and the operation of automated clearinghouses that transfer funds electronically among depository intitutions; various private organizations also perform payments system functions.

Peak
The high point at the end of an economic expansion until the start of a contraction.

Pecking-order view (of capital structure)
The argument that external financing transactions costs, especially those associated with the problem of adverse selection, create a dynamic environment in which firms have a preference, or pecking-order of preferred sources of financing, when all else is equal. Internally generated funds are the most preferred, followed by new debt, and debt-equity hybrids. Finally, new equity is at the least preferred source.

Penalty tax
A federal tax that can be applied if a plan holder does not meet certain requirements when making withdrawals from a tax-advantaged retirement plan (for instance, if the plan holder has not reached age 59-1/2). This penalty tax is owed in addition to any income taxes due.

Pennant
A chart pattern resembling a pointed flag, with the point facing to the right, which shows a diminishing variance of price.

Penny stock
Used in the context of general equities. Stock that typically sells for less than $1 a share, although it may rise to as much as $10/share after the initial public offering, usually because of heavy promotion. All are tradedOTC, many of them in the local markets of Denver, Vancouver, or Salt Lake City.

Pension fund
A fund set up to pay the pension benefits of a company's workers after retirement.

Pension liabilities
Future liabilities resulting from pension commitments made by a corporation. Accounting for pension liabilities varies widely by country.

Pension parachute
A form of poison pill providing that in the event of a hostile takeover attempt, any excess pension planassets can be used to benefit pension plan participants. This prevents the raiding firm from using the pension assets to finance the takeover. In the context of corporate governance, these provisions prevent an acquirer from using surplus cash in the pension fund of the target in order to finance an acquisition. Surplus funds are required to remain the property of the pension fund and to be used for plan participants' benefits.

Pension plan
A fund that is established for the payment of retirement benefits.

Performance attribution analysis
The decomposition of a money manager's performance results to explain the reasons why those results were achieved. This analysis seeks to answer questions such as: (1) What were the major sources of added value? (2) Was short-term factor timing statistically significant? (3) Was market timing statistically significant? and (4), was security selection statistically significant?

Periodic payments
A series of payments from an annuity, qualified retirement plan, or 403(b)(7) account made over a certain term of years. A payment from an IRA, even if over a period of years, is not considered a periodic payment for tax purposes.

Permissiable nonbank activities
Financial activities closely related to banking that may be engaged in by bank holding companies (BHCs), either directly or through nonbank subsidiaries. For example, a BHC might own finance companies or engage in mortgage banking. The Federal Reserve Board determines which activities are closely related to banking. Before making such activities permissible, the Board must determine that performance of the activities by bank holding companies is in the public interest.

Phantom Stock Award
A type of incentive grant in which the recipient is not issued actual shares of stock on the grant date but receives an account credited with a certain number of hypothetical shares. The value of the account increases over time based on the appreciation of the stock price and the crediting of phantom dividends. Payout may be settled in cash or stock.

Phase space
A graph which shows all possible states of a system. In phase space we plot the value of a variable against possible values of the other variables at the same time. If a system had three descriptive variables, we plot the phase space in three dimensions, with each variable taking one dimension.

Philippine Stock Exchange
Established in 1992 through the merger of the Manila Stock Exchange and the Makati Stock Exchange, the Philippines'only securities market.

Phillips Curve
A graph that supposedly shows the relationship between inflation and unemployment. It is conjectured that there is a simple trade-off between inflation and unemployment (high inflation and low unemployment, and low inflation and high unemployment). Named after A.W. Phillips. Obviously, the relation between these important macroeconomic variables is more complicated than this simple graph would suggest. For a modern treatment, see work of Robert Lucas.

Phone switching
Transferring money between funds in the same mutual fund family by telephone request. There may be a charge associated with these transfers. Phone switching is also possible among different fund families if the funds are held in street name by a participating broker/dealer.

Physical asset
Actual property such as precious metals or real estate. Also called real or tangible assets.

Picture
Describes bid and askedprices a broker quotes for a given security. Used for listed equity securities. Bid and ask prices and quantity information from a specialist or from a dealer regarding a particular security (i.e., "IBM's 1/4 to 1/2, 5m by 10m").

Piece
Apply mainly to convertible securities. Increment of bonds that trade in portions of $1000 minimum. Not all bonds can be traded in "pieces," and the increments can vary.

Plan sponsors
The entities that establish pension plans, including private business entities acting for their employees; state and local entities operating on behalf of their employees; unions acting on behalf of their members; and individuals representing themselves.

Plus
Used to quote a price in 64ths. Dealers in government bonds normally give price quotes in 32nds. To quote a bid or offer in 64ths, they use pluses; a dealer who bids 4+ is bidding the handle plus 4/32 + 1/64, which equals the handle plus 9/64.

Point and figure chart
A price-only chart that takes into account only whole integer changes in price, i.e., a 2-point change. Point and figure charting disregards the element of time and is used solely to record changes in price.

Pool
In capital budgeting, the concept that investment projects are financed out of a pool of bonds, preferred stock, and common stock, and a weighted-average cost of capital must be used to calculate investment returns. In insurance, a group of insurers who share premiums and losses in order to spread risk. In investments, the combination of funds for the benefit of a common project, or a group of investors who use their combined influence to manipulate prices.

Portfolio beta
Used in the context of general equities. The beta of a portfolio is the weighted sum of the individual asset betas, According to the proportions of the investments in the portfolio. E.g., if 50% of the money is in stock A with a beta of 2.00, and 50% of the money is in stock B with a beta of 1.00,the portfolio beta is 1.50. Portfolio beta describes relative volatilityof an individual securitiesportfolio, taken as a whole, as measured by the individual stockbetas of the securities making it up. A beta of 1.05 relative to the S&P 500 implies that if the S&P's excess return increases by 10% the portfolio is expected to increase by 10.5%.

Portfolio R2
Used in the context of general equities. Number between 0 and 1 that measures the strength of correlation of movement between the portfolio/stock and the index. Indeed, the R2 is the square of the correlation. For hedging purposes, the higher the R2, the better.

Precautionary motive
A desire to hold cash in order to be able to deal effectively with unexpected events that require cash outlay.

Precedence
The established system of priorities of trades in an exchange. For example, the highest bid and lowest offer have highest precedence; the first bid or first offer at a price has highest priority, and large orders have priority over smaller orders.

Precompute
Method of charging interest in which the annual interest is either deducted from the face amount of the loan when the funds
are distributed or is added to the total amount and divided into the regular payments.

Preference
Refers to over-the-counter trading. Selection of a dealer to handle a trade despite the dealer's market not being the best available. Often the "preferenced dealer" will then move his market in line.

Preferred habitat theory
A biased expectations theory that believes the term structure reflects the expectation of the future path of interest rates as well as risk premium. The theory rejects the assertion that the risk premium must rise uniformly with maturity, but instead profits that to the extent that the demand for and supply of funds do not match for a given maturity range, some participants will shift to maturities showing the opposite imbalances, as long as they are compensated by an appropriate risk premium whose magnitude will reflect the extent of aversion to either price or reinvestment risk.

Present value
The amount of cash today that is equivalent in value to a payment, or to a stream of payments, to be received in the future. To determine the present value, each future cash flow is multiplied by a present value factor. For example, if the opportunity cost of funds is 10%, the present value of $100 to be received in one year is $100 x [1/(1 + 0.10)] = $91.

Present Value Components Analysis
An analytical tool that establishes a base NPV for a project that can then be adjusted for the incremental NPV effect of separate elements of the project's overall potential sales.

Present value factor
Factor used to calculate an estimate of the present value of an amount to be received in a future period. If the opportunity cost of funds is 10% over next year, the factor is [1/(1 + 0.10)].

Price-earnings ratio
Shows the multiple of earnings at which a stock sells. Determined by dividing current stock price by current earnings per share (adjusted for stock splits). Earnings per share for the P/E ratio are determined by dividing earnings for past 12 months by the number of common sharesoutstanding. Higher multiple means investors have higher expectations for future growth, and have bid up the stock's price.

Price elasticities
The percentage change in quantity divided by a percentage change in the price. Answers the question: How much will the demand for my product decrease if I raise prices by 10%?

Price gap
A term used when the price of a stock rockets or dives in a direction away from its last price range, such as a stock with a trading range of $10-$12 that closes at $12 and climbs to $14 the next day.

Price give
Used in the context of general equities. Willingness of a buyer or seller to negotiate on price, within reason, from the price at the last sale or the indicated level. See: Takes price.

Price-specie flow mechanism
Adjustment mechanism under the classic gold standard allowing disturbances in the price level in one country to be wholly or partly offset by a countervailing flow of specie (gold coins) that would act to equalize prices across countries and automatically bring international payments into balance.

Priority
Used for listed equity securities. System used in an auction market, in which the first bid or offer price is executed before other bid and offer prices, even if subsequent orders are larger. NYSE rules stipulate that the bid made first should be executed first, or if two bids came in at once, the bid for the large number of shares receives "priority." The bid not executed is then turned to the broker, who informs the customer that the trade was not completed because there was stock ahead. See: Standing.

Privatization
The transfer of government-owned or government-run companies to the private sector, usually by selling them.

Pro forma capital structure analysis
A method of analyzing the impact of alternative possible capital structure choices on a firm's credit statistics and reported financial results, especially to determine whether the firm will be able to use projected tax shield benefits fully.

Product cycle theory
Theory suggesting that a firm initially establish itself locally and expand into foreign markets in response to foreign demand for its product; over time, the MNC will grow in foreign markets; after some point, its foreign business may decline unless it can differentiate its product from competitors.

Product Differentiation
A source of competitive advantage that depends on producing some item that is regarded to have unique and valuable characteristics.

Profit Graph
A graphical representation of the potential outcomes of a strategy. Dollars of profit or loss are graphed on the vertical axis, and various stock prices are graphed on the horizontal axis. Results may be depicted at any point in time, although the graph usually depicts the results at expiration of the options involved in the strategy.

Profit margin
Indicator of profitability. The ratio of earnings available to stockholders to net sales. Determined by dividing net income by revenue for the same 12-month period. Result is shown as a percentage. Also known as net profit margin.

Profit Range
The range within which a particular position makes a profit. Generally used in refernce to strategies that have two break-even points - an upside break-even and a downside break-even. The price range between the two break-even points would be the profit range.

Profitability ratios
Ratios that focus on how well a firm is performing. Profit margins measure performance with relation to sales. Rate of return ratios measure performance relative to some measure of size of the investment.

Proforma Invoice
A quotation in the form of a ninvoice prepared by the seller that details items which would appear on a commercial invoice if an order results.

Progressive taxation
Characterizes a convex tax schedule that results in a higher effective tax rate on higher income levels. Increases for some increases in income, but never decreases with an increase in income.

Prospectus
Formal written document to sell securities that describes the plan for a proposed business enterprise, or the facts concerning an existing one, that an investor needs to make an informed decision.
Prospectuses are used by mutual funds to describe fund objectives, risks, and other essential information.

Protect
Assure the salesperson or trader that interest, buy or sell, will be attended to,
given any change in the trading circumstances, as follows: At a price: If the stocktrades
at a certain price or price range, the trader will show this market to the salesperson and thus allow participation under these favorable circumstances. Floor protection: Representation of a client on the floor of the exchange-so that if size were to trade at his price or a better price, salesperson would participate. Volume (OTC): If a certain amount of volume trades (that parallels the protectee's interest), trader assures salesperson of reasonable participation in the trading activity. The extent of this protection depends on liquidity, number of market makers, and other aspects of the stock.

Protected Strategy
A position that has limited risk. A protected short sale (short stock, long call) has limited risk, as does a protected straddle write (short straddle, long out-of-the-money combination). See also Combination and Straddle.

Protectionism
Notion that governments should protect domestic industry from import competition by means of tariffs, quotas, and other trade barriers.

Protective covenant
A part of an indenture or loan agreement that limits certain actions a company may take during the term of the loan to protect the lender's interests.

Protest
Instructions given to a collecting bank that drafts falling due for payment are to be formally presented to the drawee by a notary, who is to formally record any default.

Prototype plan
A qualified retirement plan sponsored by a financial institution. It may be adopted by executing a written agreement. A prototype is generally more flexible than the IRS Form 5305 or 5305-A and may have additional special features. Also called a master pension plan.

Provisional call feature
A stipulation in a convertible issue that allows the issuer to call the issue during the noncall period if the price of the stock reaches a certain level. In the case of convertible securities, right of an issuer to accelerate the first redemption date if the underlying common should trade at or above a certain level for a sustained period. Most typical terms are 150% of conversion price for 20 consecutive days. Note that under these circumstances the security has appreciated, at a minimum, 50% since being issued.

Proxy
Authorization, whether written or electronic, that shareholders' votes may be cast by others. Shareholders can and often do give management their proxies, delegating the right and responsibility to vote their shares as specified.

Proxy Committee
A group of individuals appointed by the board of directors of the company to formally represent the shareholders who send in proxy cards, to vote the represented shares in accordance with the shareholders' instructions.

Proxy Committee Ballot
The ballot signed and submitted at the meeting by the Proxy Committee. It is the legal voting of shares represented by proxies assigned to the Proxy Committee and should always be completed.

Proxy contest
A battle for the control of a firm in which a dissident group seeks, from the firm's other shareholders, the right to vote those shareholders' shares in favor of the dissident group's slate of directors. Also called proxy fights.

Proxy fight
Often used in risk arbitrage. Technique used by an acquiring company to attempt to gain control of a takeover
target. The acquirer tries to persuade the shareholders of the target company that the present management of the firm should be ousted n favor of a slate of directors favorable to the acquirer, thus enabling the acquiring company to gain control of the company without paying a premium price.

Proxy statement
Document intended to provide shareholders with information necessary to vote in an informed manner on matters to be brought up at a stockholders' meeting. Includes information on closely held shares. Information required by the SEC that must be provided to shareholders who wish to vote for directors and on other company decisions by proxy.

Prudent-man
rule
A common law standard against which those investing the money of others fiduciaries) are judged.

P&S
Purchase and sale statement. A statement provided by the broker showing change in the customer's net ledger balance after the offset of any previously established positions.

PSA Prepayment Rate
The Bond Market Trade Association's Mortgaged Asset-Backed Securities Division's prepayment model based on an assumed rate of prepayment each month of the then unpaid principal balance of a pool of mortgages. PSA is used primarily to derive an implied prepayment speed of new production loans. 00% PSA assumes a prepayment rate of 2% per month in the first month following the date of issue, increasing at 2% percentage points per month thereafter until the 30th month. Thereafter, 100% PSA is the same as 6% CPR (Constant prepayment rate).

PSSG
Financial ratio defined as stock price divided by sales over sales growth. Often used in the valuation of Internet stocks. Related: PREG.

Public Book (of order)
The orders to buy or sell, entered by the public, that are generally away from the current market. The order book official or specialist keeps the public book. Market-Makers on the CBOE can see the highest bid and lowest offer at any time. The specialist's book is closed (only he knows at what price and in what quantity the nearest public orders are). See also Market-Maker and Specialist.

Put bond
A bond that the holder may choose either
to exchange for par value at some date or to extend for a given number of years. If the price is above par, the put is a "premium put."

Put-call parity
Applies to derivative products. Option
pricing principle that says, given a stock's price, a put and call of the same class must have a static price relationship because arbitrage opportunities or activities will always reestablish such a relationship.

"Put it on "
Used for listed equity securities. "Go to the floor to transact." See: Print.

Put option
This security gives investors the right to sell (or put) a fixed number of shares at a fixed price within a given period.
An investor, for example, might wish to
have the right to sell shares of a stock at a certain price by a certain time in order to protect, or hedge, an existing investment.

Pyramid scheme
An illegal, fraudulent scheme in which a con artist convinces victims to invest by promising an extraordinary return
but instead simply uses newly invested funds to pay off any investors who insist on terminating their investment.

Pyramiding
A type of stock swap option exercise in which a small number of previously-owned shares
is surrendered to the company to pay a portion of the exercise price, for which a slightly larger number of option shares may be purchased, which are then immediately surrendered back to the company to pay additional amounts of the exercise price, and so on until the full option price has been paid and the optionee is left with just the number of shares equal to the option spread. With the advent of broker-assisted "Cashless Exercise/Same Day Sale" programs (see above), pyramiding has fallen out of favor.